(b) Given the supply schedule for this public good as shown by the Qs column what is the optimal quantity of this public good and what is the optimal price?
(c) What is the perceived marginal benefit and perceived marginal cost when 3 units of the public good are supplied? What does this indicate about the allocation of resources to this public good?
Question 2
In a typical month a family buys six bags of candy bars as snacks when the price of a bag costs $4.00. When the price of the candy bars falls to $3.00 a bag the family buys seven bags of candy bars a month. When the price of a bag of candy bars rises to $6.00 the family buys three bags a month. Answer these questions:
(a) How did the fall in the price affect real income in terms of bags of candy bars?
(b) How did the rise in the price affect real income in terms of bags of candy bars?
[Hint: How many bags of candy bars could the family buy in situation (a) and in situation (b) without changing the amount they spend on candy bars in a typical month?]